Colombian Production Will Expand As Gas Monetization Unfolds

Key Takeaways

• Enhanced efficiency and cost reductions support resilient earnings and margins, strengthening the company's position amid changing oil prices and energy market dynamics.
  
• Expansion into new reserves, gas monetization, and a focus on low-emission operations drive growth, revenue diversification, and improved investor appeal.
  
• Heavy reliance on mature Colombian assets exposes Parex to regulatory, operational, and energy transition risks that threaten long-term growth prospects and margin stability.

Catalysts

Engages in the exploration, development, production, and marketing of oil and natural gas in Colombia.

• The company is rapidly expanding production capacity through successful development drilling, secondary recovery (EOR), and near-field exploration across its core Colombian assets, positioning it to capitalize on persistent global energy demand growth and potential oil supply tightness-this should drive revenue and free funds flow growth as production volumes rise.
  
• Meaningful internal cost optimizations, infrastructure upgrades, and lower normalized power costs have structurally reduced operating expenses, enhancing netbacks and driving higher net margins-enabling more resilient earnings even in a lower oil price environment.
  
• Accelerated near-field and greenfield exploration (e.g., Putumayo, Llanos Foothills, VIM area) are expected to open up new reserves and production streams, leveraging technological advancements and offering visible production and revenue upside in 2026 and beyond.
  
• The upcoming monetization of significant natural gas volumes (e.g., La Belleza block), supported by new pipeline infrastructure in a Colombian market experiencing gas shortages, represents a forward-looking catalyst for revenue diversification and margin expansion.
  
• Parex's commitment to low-emission operations and the release of its annual sustainability report reinforce its ability to attract capital and maintain regulatory favor, positioning the company to benefit from the industry's shift toward higher environmental standards and supporting long-term cost of capital and share price potential.

Parex Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Parex Resources's revenue will decrease by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.9% today to 27.2% in 3 years time.
• Analysts expect earnings to reach $261.3 million (and earnings per share of $3.08) by about July 2028, up from $81.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.6x on those 2028 earnings, down from 13.2x today. This future PE is lower than the current PE for the CA Oil and Gas industry at 12.7x.
• Analysts expect the number of shares outstanding to decline by 3.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.95%, as per the Simply Wall St company report.

Parex Resources Future Earnings Per Share Growth

Risks

• Parex's exclusive focus and asset concentration in Colombia exposes it to significant geographic and political risk, making it vulnerable to changes in local regulatory, tax, and royalty policies, which could directly impact revenue stability and increase the possibility of future asset impairments.
  
• The company's strategy relies on continued development of existing mature assets, such as Cabrestero and Llanos 34, which are subject to natural production decline rates that may require continually higher capital expenditures to simply maintain output, potentially leading to lower free cash flow and squeezed net margins over the long term.
  
• Planned production growth and future gas monetization projects depend on successful acquisition and timely renewal of exploration licenses, ongoing community engagement, and complex infrastructure builds, introducing execution and bureaucratic risks that could delay or reduce future earnings.
  
• Long-term secular trends favoring global decarbonization, accelerating renewable energy adoption, and the increasing electrification of transportation threaten to structurally reduce oil demand and prices, putting sustained pressure on Parex's revenue and profit outlook.
  
• Heightened investor and regulatory focus on ESG standards could raise capital costs, constrain access to financing, and shrink the potential investor pool for oil producers; coupled with the potential implementation of stricter emissions regulations, this could increase compliance and operating costs and erode long-term net margins.

Valuation

• The analysts have a consensus price target of CA$16.017 for Parex Resources based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $961.7 million, earnings will come to $261.3 million, and it would be trading on a PE ratio of 4.6x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of CA$15.15, the analyst price target of CA$16.02 is 5.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.